Probably the worst thing that
could happen in your career as a

syndicator, or a fund manager is
having to make a bad capital

call, having to call up
investors who and say, you know,

we just need a little bit more
money or you're going to lose

money. It's a terrible
situation, we're going to talk

about two different ways that we
deal with capital calls. And we

put it into a operating
agreement and let investors know

in a PPM, it's what I look at as
a rate as a syndication

attorney, and you should know
what your options are.

Now, having to make a capital
call is awful. Fortunately, I've

never needed to make one in any
deal that I've done. But it

certainly does happen quite
frequently, that there will be a

point where you're going to need
to call your investors and let

them know, you need more money,
or the the bad things are gonna

happen. Now, I've almost had
this happen once as money ran

dry as a lawsuit started up in a
deal that I had going. And the

lawsuit itself was eating up a
lot of lawyer fees. At the same

time, it was diminishing the
account that we had in reserve.

So fortunately, that didn't
happen. We made it out just in

the nick of time. And I was able
to recover that syndication

without doing a capital call. So
yeah, that was good. Because

making it just as feels icky,
right, you've made all these

promises to your investors about
what you're going to do, and to

not be able to deliver just
feels bad, it's just feels

wrong. But there are things you
have to do, right? Sometimes you

got to get that extra money, it
could be something like a

lawsuit or deferred maintenance,
or it's maybe it's something

that that happened, you know, a
freak of nature happen. And it's

just not covered by insurance.
And in order to make everything

work, still make your tax
payments, you're gonna need to

take do what needs to be done,
or service the loan, of course.

Now, in order to do this,
there's really three ways we

handle it. The worst way
probably is to just not include

it at all. Now, if depending on
the deal, that's pretty safe in

order to do, you can always go
back to your investors and ask

for more money, it just may not
be spelled out in the operating

agreement. So it's not uncommon
to leave it out. Because it's

kind of uncomfortable and
uncomfortable conversation. Now

I get it, I would still
encourage investors, syndicators

and fund managers to think about
it and include it as part of the

operating agreement. But if
you've got the right kind of

structure and enough reserves, I
guess it's probably okay to

leave it out. Now, the most
common way to deal with with

capital calls, where it is
included, is to do it as

treatment as a loan. So you put
a call out to your investors and

say, okay, investors Listen up,
we've got to raise an additional

$500,000, we need to do it
because of XYZ. And as part of

that, we're going to offer this
low, you can that you can invest

in a loan in us make that loan
of $500,000, we're going to pay

you off, as quickly as we can't,
we're not going to be making

any, any distributions until
though until the loan is paid

off. And then the we're going to
do it at an interest rate of

10%, or whatever percentage you
determine, would make the most

sense. So that's one way to do
it. The second way to do it is a

mandatory capital call. So a
mandatory capital call looks

like this. Investors, we need
$500,000 Each own 10%. So I'm

gonna need to get $50,000 from
each of you. Now, if you don't

give that to me, it's going to
work like this. That day, that

50,000 That you don't
contribute, is going to come off

of the amount of equity that you
own already. And it's going to

go on one of the other investors
ledger, but it's also going to

go more than that. So we're
going to actually decrease your

equity more than the $50,000
worth. We're going to decrease

it say $75,000 Worth and give
that $75,000 worth of equity to

the investors who pick up the
slack. That's the more more

confrontational approach, but
it's the much more effective

approach sometimes and alone
environment just doesn't work

and you aren't going to be able
to do it and somebody's gonna

have to be able to step up and
if nobody steps up, then where

are you at? But with a hammer or
I guess you could call it a

carrot and stick model of a
mandatory capital call works

pretty well. My name is Tilden
Moschetti. Those are the ways

that we set up capital calls
most commonly for a real estate

syndication, or occasionally for
business as well. If we can help

you set up yours, please don't
hesitate to give us a call. We

specialize in Regulation D rules
506b and 506c.